How India is squandering the global textile opportunity

The Chinese take-away

The pace at which China’s textile exports jumped (a few hundred percent) in this first few months of 2005 has caused wider ripples in the world of international trade. The United States and the European Union have raised import barriers, and in response, China has discarded its self-imposed handicap. In sharp contrast, India’s performance has been modest.

Dr Manmohan Singh’s government came to power with a well publicised commitment to create employment. The textile industry presented one of the best opportunities India ever had in recent years to create jobs on a massive scale. What was needed though was liberalisation of the labour laws that served to protect the trade-unionists, at the expense of workers. The direct result of these laws is that India lacks the economies of scale to effectively compete against China’s huge factories. Dr Manmohan Singh’s government failed to urgently invest in reforming the labour laws — the least it could do to assist Indian industry.

A lack of political will on the part of the government has been matched by ineptness in the bureaucracy. One only has to look at the bungled official trade statistics that actually showed exports falling 21% in the first quarter of 2005.

Official Indian data show that in the first quarter of 2005, exports of textiles and clothing fell by an alarming 21%. Fortunately, this appears not to be true. R. Poornalingam, the senior official in the Textiles Ministry, reckons that exports have actually grown by about 20% to America and by about 10% to Europe in both quantity and value. That is closer to the importing countries’ own figures. [The Economist]

Apologists for the UPA government may well contend that given Dr Manmohan Singh’s reliance on the Left parties for his political survival, it would be unrealistic to expect him to touch the labour laws from which his allies derive their strength. But India missed a golden opportunity. The game is not over yet, and unless the Indian government unshackles its textile industry, even the second place may slip out of its hands — into Pakistan’s, perhaps.

Even so, Mr Poornalingam concedes that India is not doing as well as had been hoped. Its textile industry, still dominated by smaller firms, had not geared up for the post-quota world as China’s had. Buyers are deterred from placing large orders by poor infrastructure. And restrictive labour laws make firms reluctant to take on staff to meet a big one-off order, because of the difficulty of laying workers off later. The government’s Communist allies have blocked fundamental labour-law reform. However businesses are optimistic that a more limited change, specific to the clothing industry, may sneak through.

The industry, which already employs 30m people in India, offers just the sort of labour-intensive development the country needs. Its workers are cheaper (if less productive) than China’s. It is a big producer of cotton and man-made fibres and so, like China, has the potential to become a vertically integrated textiles powerhouse. For now, however, it accounts for just 5% of American textile imports, compared with China’s fast-growing 19%.

Of the other South Asian exporters, only Pakistan has a big raw-material base. Having invested $4 billion in the four years up to the lifting of quotas, the industry there is well placed for growth. [The Economist]

Indeed. I spoke with a bunch of folk from various textile-machinery trade organizations last week, a couple held fairly negative views on India’s preparations for the end of quotas. with capital spending only picking up about three months before the end of the quota regime (compared with about a decade for China and five or so years for Pakistan and Bangladesh). It’s now in catch-up mode.

Be carefull here. It would be better not to give ammunition to those who want to expose globalization as a race to the bottom. I already hear them complain: “India can only compete in textiles with less protection for workers and lower wages”. This is not true of course, but the impression would be given that they are right.

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Indeed. I spoke with a bunch of folk from various textile-machinery trade organizations last week, a couple held fairly negative views on India’s preparations for the end of quotas. with capital spending only picking up about three months before the end of the quota regime (compared with about a decade for China and five or so years for Pakistan and Bangladesh). It’s now in catch-up mode.

Be carefull here. It would be better not to give ammunition to those who want to expose globalization as a race to the bottom. I already hear them complain: “India can only compete in textiles with less protection for workers and lower wages”. This is not true of course, but the impression would be given that they are right.